Canary Wharf gets its wings clipped Olympia & York London project in bankruptcy

May 29, 1992|By Richard O'Mara | Richard O'Mara,London Bureau

LONDON -- It rises like an exclamation point on the east end of this low-slung city, up into the smog from Isle of Dogs, a thumb of land jutting into the Thames.

The men who run the riverboat tours down to Greenwich always call attention to Canary Wharf and to the tower at its center, 1 Canada Square. It is the tallest in Europe, they say.

It may also be one of the emptiest. And it could become emptier still, now that the bankers financing Canary Wharf have decided they have given enough.

They made their decision Wednesday after considering a request to lend nearly $1 billion more to the project's developer, Olympia & York Developments Ltd., a Toronto-based developer that has sought bankruptcy protection for most of its Canadian assets.

The project now goes into "administration," a procedure similar to a Chapter 11 bankruptcy reorganization in the United States. Administration will protect the developer from creditors while court-appointed managers from the Ernst & Young accounting firm decide whether to revive Canary Wharf or sell off parts of it.

For many people, Canary Wharf is a symbol of the financially predatory and robust '80s, a legacy of the years of greed when the ultra-free market ideas of Prime Minister Margaret Thatcher dominated the British economy.

Though slightly less than half-finished and just over half-rented, it is the largest development in Europe, with its envisaged 11 million square feet of office space (at a projected cost of $7.3 billion) rising in jarring contrast to the grassy slopes and gilded royal palaces of Greenwich across the river.

Olympia & York, developer of Battery Park in Manhattan, began Canary Wharf about seven years ago with the aim of creating what one commentator called "a fragment of a city" in the Docklands region, where land was underused, virtually worthless and not readily accessible. The greater goal was to revitalize London as a financial capital and enhance its chances of attracting the European Community's new central bank.

Today, in Prime Minister John Major's Britain, such ambitious, free market ideas are still in the ascendancy. It may have been Mr. Major's rigid adherence to one of the principles of Thatcherism -- against gov

ernment intervention in the private economy -- that brought Canary Wharf to this watershed.

The 11 banks that had been considering the new money for Olympia & York reportedly had made the loans contingent on a firm commitment from the government to move about 2,000 civil servants into Canary Wharf's offices.

Such a rescue has been discussed a lot. This month, Environment Secretary Michael Howard told the House of Commons he was negotiating with Olympia & York for office space for his ministry's employees and those of the Department of Trade and Industry. Both are looking for new quarters.

Opposition was vocal in some sectors, especially in the Labor Party, which decried the proposed move as a dose of the hated socialism for the super-rich.

In the end, Mr. Major never gave the necessary commitment. Mr. Howard said yesterday, "It's certainly not for the government to bail out a private company."

The banks -- including such big ones as Citibank, Credit Suisse of Switzerland, Credit Lyonnais of France, Barclays and Lloyds of the United Kingdom -- which already have lent Olympia & York more than $2 billion, declined to go in deeper.

The question now is whether Canary Wharf will ever be finished and, if it is, whether it will thrive.

The answer is no, unless more and more businesses find that remote location down at the river's bend attractive.

Access to the Docklands is still rudimentary. An extension of the subway was to be partly financed by the new money Olympia & York requested from the banks. Without it there is no hope for the Docklands and Canary Wharf. That was understood from the beginning.

Worse, the recession, which holds Britain in a seemingly unshakable grip, has made space in central London cheaper and more plentiful than it has been in years. As a result, there is no incentive to go way out to Canary Wharf when much more convenient offices can be found in central London.

Brian Pitman, chief executive officer of Lloyds Bank, said that is one of the "biggest problems faced by property developers, this oversupply of office accommodation that will last for several years to come."

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